Advisory Council for Economic Transformation minutes: September 2021

Attendees and apologies

Attendees:

• Cabinet Secretary for Finance and Economy
• Minister for Business Trade, Tourism and Enterprise
• Mariana Mazzucato
• John Alexander
• Jackie Brierton
• Lynne Cadenhead
• Chris van der Kuyl
• Graeme Roy
• Maggie McGinlay
• Sean McGrath
• Mark Logan
• Jamie Grant
• Roz Foyer
• Nick Macpherson
• Emma Parton
• Anton Muscatelli

Apologies:

• Sharon White
• Mark Blyth

Supporting SG officials:

• Liz Ditchburn
• Gary Gillespie
• Cornilius Chikwama
• Richard Murray
• Kathy Johnston

Items and actions

Introductions

Ms Forbes welcomed members to the 3rd meeting of the Council and outlined the action undertaken since it last met. This included: establishing the sub-groups, three of which have met; analysing the consultation responses; and continued engagement with industry and key stakeholders. 

The focus of this meeting is to provide the opportunity for the sub-groups to share the key issues raised so far, to seek input from the Council on the draft vision and objectives and explore how we close the gap between where we want the Scottish economy to be and where we are now. 

On the back of this discussion, work will begin on drafting the strategy.

Deep dives

Ms Forbes invited each Chair from the sub-groups to feedback on the two discussion questions set at the initial sub-group meetings:

• what would transformation in Scotland by 2032 look like? 
• what is the biggest blocker to delivering that ambition?

Sub-group – Entrepreneurship

Mark Logan set out a potential framework to place the recommendations using the domains we want to focus help and support and the dependences these domains have. The entrepreneurial landscape is a spectrum with specific areas needing focused attention. Specifically, it could be argued that Scotland does not have social enterprises but instead charities. 

Using the two dimensions of domains and dependencies, they can help identify and prioritise the actions we need to take (and scale back) along the entrepreneurship spectrum. 

The Council was supportive of this approach and highlighted the need to ensure we build on past work in this area, including by the previous Council of Economic Advisers. 

It was reflected that there have been some fantastic schemes in the past 25 years but they have not had the desired impact. Often this is due to a lack of long-term commitment on initiatives which work and instead introducing new initiatives every few years. Some initiatives have been unsuccessful due to various barriers.

Ms Forbes highlighted that work is underway to consider these blockers and where a different approach may be necessary. This will be shared with the Council in due course. On the need for a longer-term focus, the Climate Change Plan was cited as a good example where the Scottish Government has set a long term target and reports annually on progress make to achieving the target.

Sub-group – Regional equality

Jackie Brierton summarised the initial meeting of the sub-group, where it was recognised that every area has a unique set of opportunities and challenges and that referring to regions can sometimes be problematic. For example, many local businesses do not necessarily engage with their Regional Economic Partnership. 

Entrepreneurship in rural areas has never been greater as businesses have adapted to the challenges from the pandemic, with proportionately more women starting new businesses than men. There is the potential to learn from this experience. 

Scope to connect with existing activities, such as community wealth building where a bottom-up approach is taken involving local supply chains and greater utilisation of public sector procurement. For example, there is a real economic opportunity in transforming the way social care is delivered. The finance and talent of larger businesses needs to be harnessed.

Support to business needs to be tailored and to date peer-to-peer support has had limited success via the agency landscape. 

Scope to learn from the models and approaches that work in areas and how they can be enhanced or shared. How can we maximise place based approaches and outcomes?

Sub-group – Human capital

Roz Foyer provided an overview of the initial discussion on human capital where it was agreed that this was really about people and the aim to ensure every citizen can access secure, fair and meaningful work with the right skills and support. With the changing economic landscape and speed of technological change, lifelong learning is more important than ever as people change, adapt and develop their skills throughout their lifetime.

In-work poverty is a key issue which needs tackled, with the headline labour market statistics masking inequality and the challenges of underemployment. Fair Work regulations and guidance need strengthened and sectoral bargaining across low paid areas could make a significant different and help address current staff shortages. 

Scotland needs to consider what the best in the class looks like, for example in sectors such as hospitality where Scotland lags behind many countries. Need to consider how these sectors can be transformed so they are seen as a positive career choice with training, dignity, pay and job security which benefits both people and the economy as a whole.

Transformation requires a collaborative, whole system approach with clear skills investment strategies across universities, colleges and workplaces. Having a clear plan for talent will help attract and retain businesses in Scotland.

Difficult to predict the jobs of the future and the skills they require. Therefore meta skills will become even more important, enabling people to adapt and learn throughout their careers. Specific attention should be on 20 – 40 year olds who will need to easily access the right training support.

It was recognised that businesses are paying greater attention to stakeholder capitalism and there are opportunities here to exploit (e.g. Business Pledge and conditionality for grants) which will benefit business, people and the environment. Having the right metrics in place to measure this is vital.

Mr McKee stressed the importance of fair work, an objective could be across the next 10 years that nobody in Scotland is earning less than living wage.  

Sub-group – Productivity and Innovation

Sir Anton Muscatelli set out his ambitions for the sub-group, which is due to meet for the first time on 23 September, with the blockers for change similar to those in other parts of the UK. This includes Scotland’s innovative capacity and there is scope to leverage greater impact from its highly competitive higher education sector, with scope for increased collaboration with business. 

Firms need to be encouraged to adopt frontier technology which will help address the long tail of businesses with low levels of productivity. 

There is no silver bullet to transformational change, but simultaneously the areas of potential focus include creating a strong collaborative innovation ecosystem and incentives and capabilities for SMEs to grow, while encouraging spillover effects. Need to draw on the substantial existing evidence base, including the latest evidence from the Productivity Institute.  

During the discussion it was highlighted that the sub-group needs to consider alongside the role of SMEs those businesses already established and making a substantial contribution. Scotland has some real strengths and these need to be recognised in the strategy.

There needs to be a clear reason for the government to ensure sectoral capacity. For example, in Sweden they used the ambition for a fossil free welfare state to drive innovation.

Often small companies fail because of unproductive management techniques. Helping to raise management skills could be transformational but is often difficult as SMEs find it hard to engage due to time pressures. However there is scope to use grants and public sector procurement as a lever to promote better governance and management in companies. 

In summing up, Ms Forbes welcomed the wide ranging discussion and highlighted this was normal at this stage in the process when developing a strategy. Going forward, there are 3 actions for each sub-group: to identify concrete actions, drawing on evidence on what works; mechanisms for capturing long-term effectiveness; and recommendations on delivery of these actions. 

Actions:

• secretariat to circulate the analysis paper that is being worked on by officials 
• at the next sub-group meeting members to decide on 3 key areas, focussing on concrete actions, mechanism for analysing long term effectiveness and the delivery of the recommendations

Where we want to be as a country in 2032

Ms Forbes outlined the revised vision and set of 5 high level objectives which take on board the feedback received to date from the Council, highlighting that it will be people who drive transformation rather than the government or any specific idea or proposal.

The Council fed back that the shorter vision was welcome but it needs to resonate with working people as well as business. Entrepreneurship can be interpreted in different ways and therefore clarity is needed that the outcome we are seeking is to transform our economy in a fair, sustainable and inclusive way. Crucially, the vision is about Scotland becoming better and the strategy needs to be explicit about economic growth. 

Strong communication of the vision within Scotland and beyond is essential if it is to have the desired impact and this will need to be properly resourced. 

Irrespective of the final vision, the focus needs to be on the detail and what this means in practice.

On the five objectives, it was highlighted that sectoral and collective bargaining are key actions which need included within the “fair prosperity” objective. We to consider how we embed business in our skills system, particularly the college sector.

Overall, the vision is about raising living standards in Scotland. Ms Forbes invited the Council to submit further feedback on the draft vision and objectives. 

Action:

• members to submit further feedback on the draft vision and objectives to the Secretariat

How will we get there?

34.    Having considered what transformational change for the Scottish economy looks like, the focus turned to how transformational change will be achieved with members breaking into two groups to consider the steps required under the 5 objectives. 

Breakout group 1 – chaired by Ms Forbes

There are no easy quick wins and transformational change requires long-term ambition and focus with a clear plan and milestones to track progress. 

Signalling the change in approach to business is vital as often the government is viewed as a blocker rather than an enabler of economic growth. The Scottish Government needs to be seen as keen to work with industry on change and to more closely engage business on policy development. 

Clear articulation is needed as to what will be different for entrepreneurs under the new strategy, recognising that many businesses do not want help and support but instead for it to be easier to do business in Scotland.

Procurement is a key lever and the shift to giving business an order rather than a grant could be transformational. 

Opportunities going forward for green revolution, with examples of good practice such as with Mitchellin and Clyde mission.

Access to finance is often cited as a problem but the real issue is that often investors do not see enough good Scottish businesses to invest in. However there is still scope to improve the regulation of angel investment and this has been recognised recently by the UK Government. 

The Scottish Government needs to take strategic interventions in partnership with business, recognising this approach carries risks. 

Skills and training are vital and while funds are targeted at certain demographics, white men aged 40 – 60 appears to be a gap. These gaps need addressed if Scotland is to reduce those economically inactive. 

Breakout group 2 – chaired by Mr McKee

The framing of productivity needs to be clear so people and businesses can understand its relevance to them. 

There are many well-evidenced approaches to boosting productivity that a large number of businesses in Scotland are unaware of.  Educating people on these techniques would be transformational. 

Fair work practices can be a driver of productivity. Fair Work Convention has a lot of this evidence. Race to the bottom approach is damaging productivity and if we look at countries that have strong productivity, they also have strong collective bargaining.

The focus has to be on investment as well as education – for example, food manufacturing sector needs investment in automation and robotics. Need to ensure that key investments (e.g. National Manufacturing Institute Scotland) consider interdependencies so sectors get what they need and we maximise impact. 

Current actions are fragmented and their impact is not tracked. Need to understand our priorities at technology and sectoral level. Simply sprinkling public money widely is not effective.   

Productivity cannot be driven by one initiative and therefore all the drivers need to be considered if we are to achieve transformational change. 

Digital skills and literacy need enhanced and a number of initiatives are underway (e.g. Digital Boost).  Need to understand if we are doing the right things and how effective they are. 

Reflections and next steps

Ms Forbes thanked members for their contributions, highlighting that we are now honing in on what needs to be included in the strategy. A clear message from the Council that there are no big and obvious economic opportunities which we are missing. Instead, there is the need to focus on a few key areas and ensure we get delivery and measurement correct. 

The sub-groups have a crucial role to play over the next few weeks in identifying the key actions to be included in the strategy. They will also need to consider how these actions will be delivered and once identified, there will be a separate discussion on measuring progress. Mr McKee highlighted that work has already begun on a potential measurement framework for the strategy. 

The initial analysis of the consultation responses will be shared with the Council shortly and officials will reflect on this alongside the evidence base on the effectiveness of current initiatives. This, together with the feedback from the Council, will be brought together and will enable us to make judgements on the key actions to be included in the strategy.